Basic Concepts of Innovation and Innovation Management PDF

Basic Concepts of
Innovation and
Innovation Management
-Student Material-
Manuel Lorenzo Hernández
Head of Technology & Innovation, Ericsson España S.A.
E-mail: manuel.lorenzo@ericsson.com
Last updated: 25 March 2010
With a big Thank You to Dr.Tony Davila and Dr. Rob Cooper
Contents
Introduction 15’
Key Concepts 30’
Innovation Management 45’
Outlook & Trends 10’
Q&A 15’
Basic Concepts of Innovation and Innovation Mgmt 2 M.Lorenzo 2010-03-25

Introduction
What is Innovation?
•Innovation is typically understood as the introduction of something new
and useful
•Innovation is the embodiment, combination, or synthesis of knowledge in
original, relevant, valued new products, processes, or services
•Invention is the first occurrence of an idea for a new product or process,

while innovation is the first attempt to carry it out into practice
•All innovation begins with creative ideas . . . We define innovation as the
successful implementation of creative ideas within an organization. In this
view, creativity by individuals and teams is a starting point for innovation;
the first is necessary but not sufficient condition for the second
Innovation is the lifeblood of any organization. Without it, not only is there
no growth, but, inevitably, a slow death.
Innovation, like many business functions, is a management process
that requires specific tools, rules, and discipline.
Introduction
What is Innovation?
An Innovation is an
Invention that becomes Implemented and taken to the Market
NOVELTY EXECUTION PRODUCT
Creativity Know-How Marketing
Key Decision Making Points

The challenge is to cultivate and leverage innovation capabilities
that allow to continuously deliver innovations

Introduction
Why is Innovation so important?

Introduction
Why is Innovation so important?
New Business
New Products
Revenue
in Development
Incremental Growth
Core Business
Today 3-year 5-year Time

Introduction
Why is Innovation so important NOW?
Increased Rate of Change Globalization of

in the environment + the Economy
• Big opportunities for innovating firms

• Big threats for established firms
So, what side are you on?

Key Concepts
Technological Innovation
Can you give some examples of technological
innovation?
–
–
–
–
–

Key Concepts
Business Model Innovation
Can you give some examples of business model
innovation?
–
–
–
–
–

Key Concepts
Process & Organizational Innovation
Can you give some examples of process and
organizational innovation?
–
–
–
–
–

Key Concepts
Innovation Matrix
Radically New
• Developed Technologies
• Enabling Technologies Technology-

• Process Technologies
based Radical
Technology Semi-Radical Innovation
Close to Existing Innovation
Business Model -
Incremental based
Innovation Semi-Radical
Innovation
Close to Existing Radically New
Business Model
• Value Created
• Target Market
• Supply Chain Role
Source: Davila et al (2005) – Making Innovation Work
Key Concepts
Innovation Matrix: Types of Innovations
• Small improvements
INCREMENTAL • Problem-solving skills, constrained creativity
INNOVATION • Dominant form of innovation in established companies
• Fights commoditization
• Significant technological changes delivering quantum leaps in

TECHNOLOGY performance or important architectural changes
INNOVATION • Deep knowledge and specialized capabilities required
• Intellectual Property (Patent) is a key tool
• Significant change in the business model dimension

BUSINESS
MODEL
• Leverages existing or slightly change technology in a new way
INNOVATION • Deep understanding of market dynamics and competition and
out-of-the-box thinking required
• Significant changes in both technology and business model

RADICAL
INNOVATION dimensions
• “Game changers”
Key Concepts
Innovation Matrix
Formulate improvements and changes to a mainstream
product:
–
–
–
–
How many can be thought of?

Key Concepts
Innovation Matrix: Change Levers
TECHNOLOGY
• Developed Technology Expected Change
Change Lever Moderate Significant
TECHNOLOGY
CHANGE • Process Technologies Developed
Technologies
LEVERS
Process
Technologies
• Enabling Technologies Enabling
Technologies
BUSINESS MODEL
• Value Created Expected Change
Change Lever
BUSINESS Moderate Significant
MODEL Value
CHANGE • Target Market Created
LEVERS Target
Market
• Supply Chain Supply
Chain
A given Innovation is normally characterized by changes in

both technology and business model dimensions
Key Concepts
Innovation Matrix: Connected Innovations (II)
The timely combination of:

Radically New
Innovation A • A business-model dominant

Innovation A+B semi-radical innovation (A), with
Technology
•a technology-dominant semi-
radical innovation (B),
results in
an (Ersatz A+B ) radical
Close to Existing
innovation with much higher

Innovation B value than its parts.
Business Model

Key Concepts
Innovation Funnel
External
University Cell
New Architectures First Releases

Ongoing Projects Sales
Finished E2E Projects
Finished Projects
Ongoing Projects
Internal
Out-licensing
VALUE
RESEARCH EXPLORATION IMPLEMENTATION
CREATION
The innovation funnel shows the progress and filtering, inside an

innovating firm, across the path from Idea to Innovation
The Challenge
It is not only about
winning (Roland Garros) once …
it is about
winning Roland Garros for the second time,
and for the third time,
and for the fourth time, …
For a established firm the challenge

is leveraging and cultivating
innovation capabilities that allow
for continued business growth

The Questions
Is it possible to manage innovation?
Can innovation be measured?
How do leading companies manage their innovation?

The Scope of Innovation Mgmt
• Changes in New
Customers, Products,
Industry, Innovation
Technology Management Solutions
Economy, and Services
Society,
From Idea to Commercialization

The framework for Innovation Mgmt
What are the elements of an innovation framework?
–
–
–
–
–
–

The Framework for Innovation Mgmt
a. Innovation Strategy
b. Innovation Organization
c. Innovation Systems (Processes, Teams & Networks)
d. Innovation Metrics
e. Innovation Learning
f. Innovation Culture
Innovation Strategy
How would you define and formulate an Innovation

Strategy?

Innovation Strategy: Key Strategic Decisions
Innovation Matrix Strategy Balances & Levers

Setting an Innovation Strategy
Radically New
requires defining the sought

15% ? 5% ? balances between these levers:
Technology
Value Capture Creativity

How much
innovation is Incremental Radical
Innovation Innovation
needed of each
Close to Existing
type ? Technological Business

70% ? 10% ?
Internal External
Business Model
Recommended Reading: Davila et al – Making Innovation Work 2005
Innovation Organization: Organizational Approaches
Dedicated
Linear Systemic
Innovation
Center
Where is Innovation generated?

Where could innovation be generated?
Where could each type of innovation be generated?
How can Innovations find the higher chances to get through?
Innovation Systems: Processes, Teams & Networks
Innovation Systems must be designed and tuned in

order to execute the Innovation Strategy
Innovation Systems require both Processes and Teams
Innovation Systems leverage and expand the

Innovation Culture

Innovation Systems: Processes, Teams & Networks
Company Vision & Strategy
Innovation Process
Changes in: Analysis Ideation Realization
•Technology & Strategy & Selection & Validation New
•Market Products,
•Industry Communication & Deal-Making Solutions
•Economy Cross- Internal Extended Teams and
•Society Functional + Innovation + with Partners Services
•… Teams Ecosystems and Customers
Innovation Teams
Innovation Culture
Innovation Systems must be designed and tuned in order to execute the
Innovation Strategy, leveraging and expanding the Innovation Culture
Innovation Systems: Processes
Changes in New
E2E Innovation
Industry, Solutions
Technology, Management Process
and Services
Economy, Society
Innovation
Realization
Research Strategy Ideation Selection
& Validation
Formulation
Feedback & Learning
Innovation Processes enable effective and efficient management of innovation

initiatives and allow for a continuous improvement cycle
Innovation Systems: Processes (Example)
Changes in New
E2E Innovation
Industry, Solutions
Technology, Management Process
and Services
Economy, Society
Idea Idea Solution Validate

Surveillance Analysis Focus Select Landing
Generation Collection Creation
Surveillance Analysis Idea Idea Solution Creation Landing

Surveillance Analysis Idea Idea Solution Creation V Landing
Generation Collection V
Generation Collection S A
Actively Identify F S Figure out and A Help new
Actively Identify F E Figure out and L Help new
scan Trends & O Find new Record, E prove innovative L innovations
scan Trends & O Find new Record, L prove innovative I innovations
changes in Critical C Ideas/Paths organize and L Solution I grow and land
changes in Critical C Ideas/Paths organize and E Solution D grow and land
Technology, Uncertainties U for make easily E Concepts for D in the target
Technology, Uncertainties U for make easily C Concepts for A in the target
Market, and foresee S innovation in accessible all C those new paths A industry/
Market, and foresee S innovation in accessible all T those new paths T industry/
Economy, Opportunities the analyzed ideas T T market
Economy, Opportunities the analyzed ideas E market
Society and Threats scenarios generated E
Society and Threats scenarios generated
Learning

Idea Management
How would you organize for collecting, evaluating and
steering on new ideas?

Idea Management
How would you organize for collecting, evaluating and
steering on new ideas?
– Case Study 1: Innovation Steering at Ericsson Spain’s

Technology&Innovation Unit
– Case Study 2: Technology Leadership Program at Ericsson

BU Networks
– Case Study 3: IdeaBoxes, an Ericsson-wide initiative

Innovation Mgmt
Innovation Portfolio Management
Portfolio management for new products is a dynamic decision

process wherein the list of active new products and R&D projects
is constantly revised.
In this process, new projects are evaluated, selected and prioritized.

Existing projects may be accelerated, killed, or de-prioritized and
resources are allocated and reallocated to the active projects.
The portfolio decision process is characterized by uncertain and

changing information, dynamic opportunities, multiple goals
and strategic considerations, interdependence among projects,
and multiple decision makers and locations.
Source: Cooper (2001) – Portfolio Management for New Products

Innovation Mgmt
What goals have leaders in innovation in mind when

they set up and use methods for portfolio
management?

Innovation Mgmt
Maximize the Value of the Portfolio
Achieve a Balanced Portfolio
Build Strategy into the Portfolio

Innovation Mgmt
Financial Methods
Scoring Models
Portfolio Maps / Bubble Diagrams
Road-mapping
Strategic Buckets Model
Project Selection with Built-in Strategic Criteria
Mixed Strategic Approaches

Innovation Mgmt
KEY FACTOR QUESTION
BUSINESS STRATEGY Is the project aligned with the business strategy,
FIT and is it strategically important?
COMPETITIVE Does the product offer unique customer benefits,
ADVANTAGE meet customer needs better than competitors,
provide good value for money?
MARKET Is the target market attractive – size, growth,
ATTRACTIVENESS margins, competition?
SINERGIES (LEVERAGES Does the project build on strengths, experiences,
CORE COMPETENCIES) and competencies in marketing, technology and
operations?
TECHNICAL FEASIBILITY What is the likelihood of technical feasibility –size
of gap, complexity, uncertainty?
FINANCIAL REWARD Can this project make money? How certain are
we? Is it worth the risk?
Business Funding (year)
Business A
Innovation Mgmt State

Business B
Business C 5M 5 M€
Innovation Systems: Processes Ongoing Project

Project Proposal 1M 1 M€
Higher
Technology / Market Risk
Lower
2008 2009 2010 2011 2012

Project Time Limit
Innovation Portfolio Management : Portfolio for Focus Area A (Example)
INNOVATION FUNNEL INNOVATION MATRIX
Knowledge Transfers
Radically New
Project Proposal
4 2
External
Technology
Internal 5 3
Past Projects
1
Close to Existing
Ongoing Projects
Project proposal

VALUE
RESEARCH EXPLORATION IMPLEMENTATION Business Model
CREATION
INNOVATION OPPORTUNITIES
A B C
01 Innovation Opportunity -A1 9 9
02 Innovation Opportunity -A2 9
03 Innovation Opportunity -A3 9 9 9
04 Innovation Opportunity -A4 9
05 Innovation Opportunity -A5 9 9 9

Innovation Strategy Follow-Up
Innovation Matrix Follow-up Balances & Levers
Checking the expected balances
Radically New
between these levers:
15% ? 5% ?
Technology
Value Capture Creativity
How much innovation Incremental Radical

of each type am I Innovation Innovation
Close to Existing
actually creating?
Technological Business
70% ? 10% ?
Internal External
Business Model

Innovation Systems: Teams & Networks
INNOVATION • Management & Steering Teams defining, enforcing and

following up the Innovation Strategy
PROCESS
• Teams executing the process (surveillance, idea mgmt,
TEAMS steering, portfolio mgmt, …) and improving it
INNOVATION • Cross-functional teams executing innovation projects

PROJECTS • External Partners
TEAMS • Project Steering Groups
INTERNAL • Internal Organizations & Processes that promote and fund

innovation activities
INNOVATION
• Also known as internal innovation market-places or
ECOSYSTEMS Corporate Venture programs
• Universities and Research Institutions

EXTERNAL • Technology and Business Partners
NETWORK • Partner Customers
• Private and Public Organizations

Innovation Metrics
How would you measure Innovation?
–
–
–
–
–
–
–

Innovation Metrics Framework
RESOURCES EXECUTION OUTPUT OUTCOME
(INPUTS) (PROCESS) (PERFORMANCE) (VALUE-ADDED)

Innovation Metrics Framework
RESOURCES EXECUTION OUTPUT OUTCOME
(INPUTS) (PROCESS) (PERFORMANCE) (VALUE-ADDED)
Funding Effective Project Exec. Technology Leadership Residual Income

–Patents
–Standards
Innovation Strategy Sales Growth
–Papers
Quality of Pipeline –…
Access to Talent & (expected impact of new Profit Growth
Knowledge ideas) Technology Performance
(Benchmarking
Motivation Innovation Strategy vs.Competitors)
–Employee Follow-up & Enforcement
Commitment to New Product Introduction
Innovation
–Incentives &
recognition Process Improvements
Schemes –On-time Delivery
Tools –Cost Reductions
–Idea Mgmt –…
–Know. Mgmt Market Performance
–… –Increased Sales
External Network –New Customers

Innovation Learning
T P S E C
Learning
Time
Technologies Performance Segmentation Efficiency Complementarities
A number of At this stage As product As the technology The focus shifts to

technologies (most of performance is performance market is becoming manage
them disruptive) measured primarily on improves, certain mature, competing complementarities:
proliferate. Different a single dimension customer segments players focus more synergies with other
companies bet on (e.g. image start valuing different and more in efficiency products and
different ones. resolution). product dimensions – and sustaining businesses, networks
Competition is often price, availability, … technologies with partners, …
At the end a particular
technology (e.g. focused solely on that The winners are those Radical innovations At this stage
gasoline engine in the single dimension companies that are may appear at this companies are most
car industry) The competitive able to read the stage and force the vulnerable to radical
dominates and the advantage goes to the market and start of a new lifecycle changes in their
many companies that company able to understand the environment
bet on a different execute the learning differences across
technology disappear cycles faster market segments
Innovation Culture
What are the elements of a strong innovation culture?
–
–
–
–
–
–

Innovation Culture
– Creativity
– Diversity
– Communication
– Cooperation
– Motivation
– Commitment
– Initiative
– Risk Taking
– Knowledge Sharing

Moral
‘How you innovate

determines
what you innovate’

Outlook and Trends
Open Innovation Model
RESEARCH EXPLORATION IMPLEMENTATION VALUE CREATION
License in
External Spin in
Acquire
+ Innovations
Internal
Ideas and Current
Technologies Market
Divest New
Spin out Markets
License out Other Firms’

Markets
• More agility and effectiveness of R&D

• Higher rate of new breakthroughs
Picture from: Dr.Henry Chesbrough’s – Researching a New Paradigm 2007
Outlook and Trends
Innovation Ecosystems
Innovation Ecosystems enable

Interdependencies
collaborative arrangements through
Networked Customers
which firms combine their individual
Cooperation & Integration
offers into a coherent, customer-
Risk
facing solution
In an Innovation Ecosystem all contributing parties can:

Validate their Strategy in advance
Create higher value for their customers and customers’ customers
Secure the right timing for launching new solutions
Focus their efforts on higher probability innovations
Innovation ecosystems allow companies to create value that

no one firm could have created alone
Inspired in Adner (2006) – Matching your innovation strategy and your innovation ecosystem
Outlook and Trends
Increasing Focus on Systemic Innovation
Stronger Innovation Culture company-wide
Contribution to innovation from all company’s

disciplines and organizations
Each and every employee is key in innovation

References
• OECD (2005). Oslo Manual: Guidelines For Collecting And Interpreting Innovation
Data, OECD Publishing, ISBN 926401308
Christensen, C. (1997).The Innovator’s dilemma. Collins Business Essentials
Davila, T. (2003). Making innovation work. Wharton School Publishing
Cooper, R. (1998, 2001). Portfolio Mgmt for New Products. Basic Books.
Cooper, R. (2001). Winning at New Products. Accelerating the process from Idea
to Launch. Basic Books

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Basic Concepts of

Last updated: 25 March 2010

 Key Concepts 30’

 Innovation Management 45’

 Outlook & Trends 10’

Basic Concepts of Innovation and Innovation Mgmt 2 M.Lorenzo 2010-03-25

•Invention is the first occurrence of an idea for a new product or process,

NOVELTY EXECUTION PRODUCT

Creativity Know-How Marketing

Key Decision Making Points

Basic Concepts of Innovation and Innovation Mgmt 4 M.Lorenzo 2010-03-25

Basic Concepts of Innovation and Innovation Mgmt 5 M.Lorenzo 2010-03-25

Today 3-year 5-year Time

Basic Concepts of Innovation and Innovation Mgmt 6 M.Lorenzo 2010-03-25

Increased Rate of Change Globalization of

• Big opportunities for innovating firms

So, what side are you on?

Basic Concepts of Innovation and Innovation Mgmt 7 M.Lorenzo 2010-03-25

Basic Concepts of Innovation and Innovation Mgmt 8 M.Lorenzo 2010-03-25

Basic Concepts of Innovation and Innovation Mgmt 9 M.Lorenzo 2010-03-25

Basic Concepts of Innovation and Innovation Mgmt 10 M.Lorenzo 2010-03-25

• Enabling Technologies Technology-

Close to Existing Radically New

• Significant technological changes delivering quantum leaps in

• Significant change in the business model dimension

• Significant changes in both technology and business model

 How many can be thought of?

Basic Concepts of Innovation and Innovation Mgmt 13 M.Lorenzo 2010-03-25

A given Innovation is normally characterized by changes in

The timely combination of:

Innovation A • A business-model dominant

innovation with much higher

Close to Existing Radically New

Source: Davila et al (2005) – Making Innovation Work

New Architectures First Releases

The innovation funnel shows the progress and filtering, inside an

 For a established firm the challenge

Basic Concepts of Innovation and Innovation Mgmt 17 M.Lorenzo 2010-03-25

 Is it possible to manage innovation?

 Can innovation be measured?

 How do leading companies manage their innovation?

Basic Concepts of Innovation and Innovation Mgmt 18 M.Lorenzo 2010-03-25

From Idea to Commercialization

Basic Concepts of Innovation and Innovation Mgmt 19 M.Lorenzo 2010-03-25

Basic Concepts of Innovation and Innovation Mgmt 20 M.Lorenzo 2010-03-25

c. Innovation Systems (Processes, Teams & Networks)

 How would you define and formulate an Innovation

Basic Concepts of Innovation and Innovation Mgmt 22 M.Lorenzo 2010-03-25

Innovation Matrix Strategy Balances & Levers

requires defining the sought

Value Capture Creativity

type ? Technological Business

Close to Existing Radically New

Where is Innovation generated?

 Innovation Systems must be designed and tuned in

 Innovation Systems require both Processes and Teams

 Innovation Systems leverage and expand the

Basic Concepts of Innovation and Innovation Mgmt 25 M.Lorenzo 2010-03-25

Company Vision & Strategy

Feedback & Learning

Innovation Processes enable effective and efficient management of innovation

Idea Idea Solution Validate

Surveillance Analysis Idea Idea Solution Creation Landing

Key Concepts 30’

Innovation Management 45’

Outlook & Trends 10’

How many can be thought of?

For a established firm the challenge

Is it possible to manage innovation?

Can innovation be measured?

How do leading companies manage their innovation?

How would you define and formulate an Innovation

Innovation Systems must be designed and tuned in

Innovation Systems require both Processes and Teams

Innovation Systems leverage and expand the

What goals have leaders in innovation in mind when

Portfolio Maps / Bubble Diagrams

Strategic Buckets Model

Project Selection with Built-in Strategic Criteria

Mixed Strategic Approaches

Funding Effective Project Exec. Technology Leadership Residual Income

A number of At this stage As product As the technology The focus shifts to

Stronger Innovation Culture company-wide

Contribution to innovation from all company’s

Each and every employee is key in innovation